Mission-Driven Investments: An Alternative To Market Timing

31 Aug 2021

CEO of Fortu Wealth, which envisions private banks offering clients digital wallets designed for payments and alternative investments.

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Retail investors are becoming a more important power on the market. The ability to trade instantly via digital brokers allows retail investors to move the market and short squeeze even against multibillion-dollar hedge funds, something that was not possible in the pre-digital age. This was seen with the GameStop saga earlier this year.

However, the video game-like user experience these digital tools have also encourages users to actively trade, rather than to buy and hold. Research shows that investors are usually better off buying and holding than they are when they try to time the market. The majority of experienced wealth managers and investors I know would confirm that one of the most common biases of inexperienced investors is the belief that they can easily master the “buy low, sell high” strategy and consistently perform using it.

This can be dangerous as many retail investors are trading with high leverage and might not fully understand the risks involved. For example, an investor’s money could get wiped out in a margin call on a volatile day. This is why at our company, we deliberately decided to discourage investors from short-term trades and educate them about the compounding effect of longer-term investment horizons.

Rather than trying to time the market or follow recent investment trends, I encourage investors to understand and define their mission: why they want to invest and what beliefs they have. Money isn’t just made for the sake of spending and consuming more; money can have a mission and philosophy behind it. Money can fund breakthrough biotech research or help companies reduce their carbon footprint. Money can save lives, bring hope, educate and encourage new talents.

However, mission-driven investing is not without risks. One common mistake I see investors make is not correctly identifying what mission is driving each particular business.

Something else investors should watch out for is greenwashing. If a company’s vision or mission statement does not with what the company does in real life, that is a clear sign of greenwashing. To avoid this issue, here are three things you can do when vetting a potential investment: 

1. Review its people. I would recommend looking closely into the company’s management team, its track record and its background. Companies and products always have people behind them, and these people form the real-life mission of the business.

2. Think like a fund manager. Consider yourself as the manager of an impact investment fund. Your goal is not to speculate and make money short term; you want to be married to this company for a lifetime.

3. Review what actions the company has made toward its mission and goals. Compare statements with real actions, as businesses may claim one thing and simultaneously do something contradictory.

Investments need to have deeper thinking and philosophy behind them. So, before you invest, ask yourself what is the main reason behind your investment decision. If it is simply to buy low and sell high or to follow a trend, please take a deep breath and think again.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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